What a disaster. Ben Bernanke to be reappointed Fed Chairman

This reveals very deep problems in the Obama program.

Bernanke was chief economist to George W. Bush, from which position he rose to Fed chairman. It is often remarked that we are so lucky to have an expert on the Great Depression in charge when the second Great Depression came knocking.

Bernanke was put in charge not because he is an expert on the Great Depression, but because he values the big banks above all else. He is deep in the pockets of Wall Street. His theory of the Depression is that it could have been avoided if we'd just saved the institutions that caused it. Witness the hundreds of billions of dollars in transfer from the taxpayer to the big banks, the free too-big-to-fail insurance, the many missed calls and predictions, the absence to this day of real help for mortgage holders when their main asset goes down.

Wow.

The Monetarists are alarmed at the unprecedented direct loans and guarantees to specific Wall Street firms. Why? It's just socializing the risk. And extending the disease. And making sure we don't solve the problem so we can have another big crisis in a few years.

But by far the worst element is what it says about the Obama team and Obama's understanding of what is wrong. Sixty years of New Deal protections worked, but there is no inkling to go back to them. Market discipline is out the window when banks are too big to fail, but no move to break them up, only to backstop them. The Fed has arrogated new powers to itself, but apparently with the consent of the Treasury and Administration.

The policy adjustments we had hoped for are clearly not in the cards if this is the preferred path. Boomers look out. You saw your wages stagnate for thirty years. Now you can retire in the Great Recession.

It is no fun saying "I told you so." Half the responses are, "You did? I don't remember." The other half are silent gestures. This post is for the first half.

Paul Krugman and the dumbing disease of Reaganism

The next ice age may arrive before the needed change in economic understanding. The political candy of Supply Side has stuck in the minds of the body politic like an parasitic alien seed that once rooted will destroy its host rather than be removed. Here Paul Krugman draws this point from the perspective of the health care debate.

All the President’s Zombies
By Paul Krugman
August 24, 2009

The debate over the “public option” in health care has been dismaying in many ways. Perhaps the most depressing aspect for progressives, however, has been the extent to which opponents of greater choice in health care have gained traction — in Congress, if not with the broader public — simply by repeating, over and over again, that the public option would be, horrors, a government program.

Washington, it seems, is still ruled by Reaganism — by an ideology that says government intervention is always bad, and leaving the private sector to its own devices is always good.

Call me naïve, but I actually hoped that the failure of Reaganism in practice would kill it. It turns out, however, to be a zombie doctrine: even though it should be dead, it keeps on coming.

Let’s talk for a moment about why the age of Reagan should be over.

First of all, even before the current crisis Reaganomics had failed to deliver what it promised. Remember how lower taxes on high incomes and deregulation that unleashed the “magic of the marketplace” were supposed to lead to dramatically better outcomes for everyone? Well, it didn’t happen.

To be sure, the wealthy benefited enormously: the real incomes of the top .01 percent of Americans rose sevenfold between 1980 and 2007. But the real income of the median family rose only 22 percent, less than a third its growth over the previous 27 years.

Moreover, most of whatever gains ordinary Americans achieved came during the Clinton years. President George W. Bush, who had the distinction of being the first Reaganite president to also have a fully Republican Congress, also had the distinction of presiding over the first administration since Herbert Hoover in which the typical family failed to see any significant income gains.

And then there’s the small matter of the worst recession since the 1930s.

There’s a lot to be said about the financial disaster of the last two years, but the short version is simple: politicians in the thrall of Reaganite ideology dismantled the New Deal regulations that had prevented banking crises for half a century, believing that financial markets could take care of themselves. The effect was to make the financial system vulnerable to a 1930s-style crisis — and the crisis came.

“We have always known that heedless self-interest was bad morals,” said Franklin Delano Roosevelt in 1937. “We know now that it is bad economics.” And last year we learned that lesson all over again.

Or did we? The astonishing thing about the current political scene is the extent to which nothing has changed.

The debate over the public option has, as I said, been depressing in its inanity. Opponents of the option — not just Republicans, but Democrats like Senator Kent Conrad and Senator Ben Nelson — have offered no coherent arguments against it. Mr. Nelson has warned ominously that if the option were available, Americans would choose it over private insurance — which he treats as a self-evidently bad thing, rather than as what should happen if the government plan was, in fact, better than what private insurers offer.

But it’s much the same on other fronts. Efforts to strengthen bank regulation appear to be losing steam, as opponents of reform declare that more regulation would lead to less financial innovation — this just months after the wonders of innovation brought our financial system to the edge of collapse, a collapse that was averted only with huge infusions of taxpayer funds.

So why won’t these zombie ideas die?

Part of the answer is that there’s a lot of money behind them. “It is difficult to get a man to understand something,” said Upton Sinclair, “when his salary” — or, I would add, his campaign contributions — “depend upon his not understanding it.” In particular, vast amounts of insurance industry money have been flowing to obstructionist Democrats like Mr. Nelson and Senator Max Baucus, whose Gang of Six negotiations have been a crucial roadblock to legislation.

But some of the blame also must rest with President Obama, who famously praised Reagan during the Democratic primary, and hasn’t used the bully pulpit to confront government-is-bad fundamentalism. That’s ironic, in a way, since a large part of what made Reagan so effective, for better or for worse, was the fact that he sought to change America’s thinking as well as its tax code.

How will this all work out? I don’t know. But it’s hard to avoid the sense that a crucial opportunity is being missed, that we’re at what should be a turning point but are failing to make the turn.

Roubini on recession, Minsky on instability

On today's podcast, we have Nouriel Roubini writing in the Phinancial Times and we have Hyman Minsky writing two decades ago about what has happened in the past year. And we apologize for dropping Saturday's podcast. It fell on the floor and rolled under the credenza and we haven't been able to get it out. We'll make it up with an extra long version today.

Before we get to Roubini and Minsky, however, we did get some feedback on our proposition about unemployment and productivity. This from the great economist James K. Galbraith. You will remember our chart showing that productivity and the unemployment rate mirror each other when mapped over a polynomial trend. We suggested the Rule of Eight. Eight minus the unemployment rate equals productivity.

Professor Galbraith wrote, quote:

Thank you. I make a very similar argument in the chapter on standards in The Predator State. It reflects the longstanding Rehn-Meidner (Swedish model) approach to combining wage compression, high employment, and rapid productivity growth.

Regards, James

Our interpretation, and that's what all good economists must expect, is that the chart is a clear picture of what is not completely original and may have a more complete theoretical discussion elsewhere. Nevertheless, our Rule of Eight stands.

So we are very appreciative of Professor Galbraith's comment, not only for the attention, but for the leads on exploration of this very little known -- and some say, though I do not find it to be so -- counter-intuitive relationship between labor and productivity.

Now on to Nouriel Roubini, writing in the Financial Times August 23 2009. Roubini, of course, deserves to be listened to because he was a voice in the wilderness prior to the housing collapse and financial sector crash. Being right is certainly not a necessary condition for being listened to in today's world, but on Demand Side, we treat it so.

The risk of a double-dip recession is rising

By Nouriel Roubini
Financial Times

... it looks like the global economy will bottom out in the second half of 2009. In many advanced economies (the US, UK, Spain, Italy and other euro zone members) and some emerging market economies (mostly in Europe) the recession will not be formally over before the end of the year, as green shoots are still mixed with weeds. In some other advanced economies (Australia, Germany, France and Japan) and most emerging markets (China, India, Brazil and other parts of Asia and Latin America) the recovery has already started.

...

... the debate is between those – most of the economic consensus – who expect a V-shaped recovery with a rapid return to growth and those – like myself – who believe it will be U-shaped, anaemic and below trend for at least a couple of years, after a couple of quarters of rapid growth driven by the restocking of inventories and a recovery of production from near Depression levels.

This is not explicit here, but I believe Roubini is making this call for the global recession, including those nations he identifies as already in recovery.

There are several arguments for a weak U-shaped recovery.

• Employment is still falling sharply in the US and elsewhere – in advanced economies, unemployment will be above 10 per cent by 2010. This is bad news for demand and bank losses, but also for workers’ skills, a key factor behind long-term labour productivity growth.

• Second, this is a crisis of solvency, not just liquidity, but true deleveraging has not begun yet because the losses of financial institutions have been socialised and put on government balance sheets. This limits the ability of banks to lend, households to spend and companies to invest.

departing from Roubini, and as Minsky points out below, the deleveraging as an exercise of cleaning the books is one thing, but a huge implicit guarantee is now in place for institutions and instruments like credit default swaps that makes the entire system not only sluggish now but tremendously more vulnerable to speculation in the future.

back to Roubini

• Third, in countries running current account deficits, consumers need to cut spending and save much more, yet debt-burdened consumers face a wealth shock from falling home prices and stock markets and shrinking incomes and employment.
• Fourth, the financial system – despite the policy support – is still severely damaged. Most of the shadow banking system has disappeared, and traditional banks are saddled with trillions of dollars in expected losses on loans and securities while still being seriously undercapitalised.
• Fifth, weak profitability – owing to high debts and default risks, low growth and persistent deflationary pressures on corporate margins – will constrain companies’ willingness to produce, hire workers and invest.
• Sixth, the releveraging of the public sector through its build-up of large fiscal deficits risks crowding out a recovery in private sector spending. The effects of the policy stimulus, moreover, will fizzle out by early next year, requiring greater private demand to support continued growth.
• Seventh, the reduction of global imbalances implies that the current account deficits of profligate economies, such as the US, will narrow the surpluses of countries that over-save (China and other emerging markets, Germany and Japan). But if domestic demand does not grow fast enough in surplus countries, this will lead to a weaker recovery in global growth.

There are also now two reasons why there is a rising risk of a double-dip W-shaped recession. For a start, there are risks associated with exit strategies from the massive monetary and fiscal easing: policymakers are damned if they do and damned if they don’t. If they take large fiscal deficits seriously and raise taxes, cut spending and mop up excess liquidity soon, they would undermine recovery and tip the economy back into stag-deflation (recession and deflation).

But if they maintain large budget deficits, bond market vigilantes will punish policymakers. Then, inflationary expectations will increase, long-term government bond yields would rise and borrowing rates will go up sharply, leading to stagflation.

Another reason to fear a double-dip recession is that oil, energy and food prices are now rising faster than economic fundamentals warrant, and could be driven higher by excessive liquidity chasing assets and by speculative demand. Last year, oil at $145 a barrel was a tipping point for the global economy, as it created negative terms of trade and a disposable income shock for oil importing economies. The global economy could not withstand another contractionary shock if similar speculation drives oil rapidly towards $100 a barrel.

In summary, the recovery is likely to be anemic and below trend in advanced economies and there is a big risk of a double-dip recession.

So we must interject again that the technical designation of a recovery is upward movement, the patient being able to raise his hand. It is not return to the previous state, which is what normal folks think of as recovery. In terms of recovering to a previous state of health. That is a long way off.

Now to Hyman Minsky, a long-time scholar and teacher at Brown University, UC Berkeley and Washington University in St Louis. At the time of his death he was a Senior Scholar at the Levy Economics Institute of Bard College.

Minsky would say, or I will say after reading a bit of Minsky, that the risks have been amplified by Fed and Treasury action to rescue the economy. Yes, the institutions and some of the securities and facilities have been saved, but the implicit guarantee now in place dwarfs all the implicit guarantees of previous cycles.

Commercial paper, real estate investment trusts, strategically placed hedge funds have all benefited from the backstopping of the Federal Reserve or a Fed-inspired consortium of private institutions. Now we have such animals as credit default swaps plus the entirety of big banking institutions now under the protection of the Fed. This means that the Fed and the integrity of the system are backstopping whatever innovations quote unquote the financial sector cowboys can come up with.

Not only are the risks of a return to speculative financing on an even grander scale more certainty than risk, but the rest of the economy must labor along under the weight of the past fiascoes being socialized and placed on the backs of the rest of us.

Rather than speak for Minsky, I would like to offer an introduction through a few passages from his book "Stabilizing an Unstable Economy," 1986. This book offers some of the best economic thinking, but the Twentieth Century Fund, which published it, should have hired a more competent editor.

Being a theory guy, let's start here, page 102.

The Current Standard Theory: The Pre-Keynesian Legacy

During the 1970s American economists engaged in what might have been taken to be a serious controversy between Keynesians and Monetarists.

Reading the footnote

The literature is immense, and any full citations (sic) would be book-length. The key names for monetarism are Milton Friedman and the joint and separate products of Karl Brunner and Alan Meltzer. Paul Samuelson, Franco Modigliani and James Tobin are names in the neoclassical Keynesian camp, although from time to time Tobin shows signs of being a Keynesian rather than a neoclassical Keynesian.

Returning to the main body of the text

The participants and the press made it appear that a deep debate was taking place. In truth, the differences were minor -- as the competing camps used the same economic theory. Furthermore, the public policy prescriptions do not really differ. The debate was largely academic nitpicking, and the public controversy was largely created by the press and by politicians. In this debate, Monetarists emphasized that changes in the money supply destabilize the economy, and Keynesians argued that fiscal variables can be used to stabilize the economy. Until late in the 1970s, and even into the first years of the Reagan administration, both believed that with correct (that is, their) policy the economy could be fine-tuned so that full employment without inflation would be achieved and sustained. Both schools hold that the business cycle can be banished from the capitalist world; and neither school allows for any within-the-system disequilibrating forces that lead to business cycles. Neither Keynesians nor monetarists of the policy establishment are critical of capitalism as such; at most they are critical of some institutional or policy details.

Both Monetarists and Keynesians are conservative in that they accept the validity and viability of capitalism. Neither are troubled by the possibility that there are serious flaws in a market economy that has private property and sophisticated financial usages. The view that the dynamics of capitalism lead to business cycles that may be thoroughly destructive is foreign to their economic theory.

The economic theory that is common to the Keynesians and the Monetarists is the Neoclassical Synthesis. Keynes held that his new theory of 1936 marked a sharp contrast with the economic theory that then ruled. The Neoclassical Synthesis, however, integrates strands of thought derived from Leon Walras -- a nineteenth-century economist -- with insights and apparatus derived from Keynes. The dominant view among contemporary economists was expressed by Gardner Ackley -- a member and then chairman of the Council of Economic Advisers in the Kennedy-Johnson era -- when he said "that Keynes' work represents more an extension than a revolution of 'Classical' ideas."

The process of assimilating Keynes' "General Theory into the previous tradition began with the early reviews and academic interpretations. In this process, important aspects of Keynes' theoretical structure, which lead to revolutionary insights into the functioning of capitalism and to a serious critique, were ignored. This is why Joan Robinson called standard Keynesianism "bastard Keynesianism." As far as an understanding of Keynes by policy-advising economists and their political patrons is concerned, the Keynesian revolution is still to come.

The elements of Keynes that are ignored in the Neoclassical Synthesis deal with the pricing of capital assets and the special properties of economies with capitalist financial institutions. These elements can serve as the foundation for an alternative economic theory that is a better guide to interpreting events and is more relevant for policy-making than current standard theory. Indeed these forgotten parts lead to a theory that makes instability, which has been of increasing importance since the mid-1960s, a normal consequence of relations that reflect essential attributes of a capitalist economy.

The view that instability is the result of the internal process of a capitalist economy stands in sharp contrast to neoclassical theory, whether Keynesian or monetarist, which holds that instability is due to events that are outside the workings of the economy. The Neoclassical Synthesis and the Keynesian theories are different because the focus of the Neoclassical Synthesis is on how a decentralized market economy achieves coherence and coordination in production and distribution, whereas the focus of the Keynesian theory is upon the capital development of an economy. The Neoclassical Synthesis emphasizes equilibrium and equilibrating tendencies, whereas Keynes' theory revolves around bankers and businessmen making deals on Wall Street. The Neoclassical Synthesis ignores the capitalist nature of the economy, a fact of which Keynes' theory is always aware.

The Walrasian input to the Neoclassical Synthesis starts with a discussion of an abstract exchange (barter) economy. The analogue may be a village fair. Results are obtained by analyzing a model that does not allow for capital-intensive production, capital assets as we know them, and capitalist finance. Using an artificial construction of trading relations, the theory demonstrates that a decentralized market economy achieves a coherent result.

decentralized and free market are synonyms.

Standard economic theory then goes on to show that the property of coherence also carries through for an economy that produces, but only under heroic assumptions about the nature of capital and time. In further extensions, the analytical apparatus of the Neoclassical Synthesis is applied to problems of aggregate income, money prices, and economic growth. In particular, supply and demand relations for labor are derived, and it is assumed that a price-level-deflated wage will adjust so that labor supply and demand are equal. The theory is set up in such a way that any deviation from the labor supply-labor demand equality will be removed by market interactions. That is, the theory holds that full employment is achieved by means of the internal operations of the economy. The theory does not explain, however, how any initial deviation is brought about. Unemployment as the result of economic processes is unexplained. The emphasis is upon the interactions that make for equilibrium and not upon endogenous disequilibrating processes.

...capital accumulation and the rate of growth of the labor force determine the rate of output growth. The savings ratio yields the proportion of income that is accumulated. The neoclassical theory treats household savings propensities as the tune-caller, determining investment and, in turn, investment is the determinant of growth. The theory has no room whatsoever for institutions that finance investment and, in so doing, force saving.

paragraphs suffers from not seeing the subsequent decades of immense investment and dropping household savings

Neoclassical theorists do short-run analysis -- where inflation and unemployment exist -- on the basis of a theory that does not allow for inflation or unemployment except as the result of outside forces. The Monetarists identify an outside force -- inept changes in the money supply -- as the cause of unemployment and inflation. Neoclassical Keynesians do not have a consistent explanation of how unemployment and inflation are brought about. Their short-run theory is a muddle. They believe that the economy will not sustain full employment, but they do not identify the mechanisms that lead to unemployment and inflation.

In addition to demonstrating that decentralized market processes lead to coherent results, the tools and techniques of the neoclassical Synthesis are used to demonstrate that a decentralized competitive market mechanism achieves an optimal result. The optimum that is derived is of a very special character: It rules out interpersonal comparisons of well-being and ignores the equity of the initial distribution of resources (and thus of income).

emphasize

...

Current theory makes an economy a lifeless arena in which depersonalized agents play abstract auctioning or re-contracting games. In our world of imperfect knowledge and imprecise actions, standard theoretical analyses posit either perfect knowledge or a fantastic capacity to compute.

here anticipating the rise of rational expectations which odd theory won many a Nobel Prize in the decades subsequent to this writing.

Nevertheless these models (which are now highly mathematical) are interesting because they show that coherence is possible. But what practical people need to know is the extent to which market processes can be used to achieve desired results. The practical problem of economic policy is to identify the sources of instability and to determine policy interventions that constrain the emergence of incoherence, even as policy abstains from intervening in those markets whose internal operations tend to yield coherent results.

There is much more to Minsky. Forthcoming. But let's conclude with something from the beginning.

For a new era of serious reform to enjoy more than transitory success it should be based on the understanding of why a decentralized market mechanism -- the free market of the conservatives -- is an efficient way of handling the many details of economic life, and how the financial institutions of capitalism, especially in the context of production processes that use capital-intensive techniques, are inherently disruptive. Thus, while admiring the properties of free markets we must accept that the domain of effective and desirable free markets is restricted. We must develop economic institutions that constrain and control liability structures, particularly of financial institutions and of production processes that require massive capital investments. Paradoxically, capitalism is flawed precisely because it cannot readily assimilate production processes that use large-scale capital assets.

Yes. That is, manage the markets. Where there are the conditions for decentralized markets that are not conducive to instability, let them go. Where markets promote instability and collapse, structure them and organize them. If necessary take them out of the market framework as pure public goods.

The underlying mortgages are not so good

If the banks are holding onto their securities until they come back in price, it may be a cold day in hell. Here from Calculated Risk. But elsewhere, a divergence between the price of the assets banks hold and the banks' stock value has David Goldman worried. That is, banks' assets are going down and the bank stock is going up, tearing a trend.

Fitch: "Dramatic" Decrease in Cure Rates for Delinquent Mortgage Loans

by CalculatedRisk

These are very important numbers ...

Press Release from Fitch: Fitch: Delinquency Cure Rates Worsening for U.S. Prime RMBS (ht Ron Wallstreetpit)

While the number of U.S. prime RMBS loans rolling into a delinquency status has recently slowed, this improvement is being overwhelmed by the dramatic decrease in delinquency cure rates that has occurred since 2006, according to Fitch Ratings. An increasing number of borrowers who are 'underwater' on their mortgages appear to be driving this trend, as Fitch has also observed.

Delinquency cure rates refer to the percentage of delinquent loans returning to a current payment status each month. Cure rates have declined from an average of 45% during 2000-2006 to the currently level of 6.6%. ...

'Recent stability of loans becoming delinquent do not take into account the drastic decrease in delinquency cure rates experienced in the prime sector since the peak of the housing market,' said [Managing Director Roelof Slump]. 'While prime has shown the most precipitous decline, rates have dropped in other sectors as well.'

In addition to prime cure rates dropping to 6.6%, Alt-A cure rates have dropped to 4.3%, from an average of 30.2%, and subprime is down to 5.3% from an average of 19.4%. 'Whereas prime had previously been distinct for its relatively high level of delinquency recoveries, by this measure prime is no longer significantly outperforming other sectors,' said Slump.

... Furthermore, up to 25% of loans counted as cures are modified loans, which have been shown to have an increased propensity to re-default.

... 'As income and employment stress has spread, weaker prime borrowers become more likely to become delinquent in their loan payments and are less likely to become current again,' said Slump.

Regardless of aggregate roll-to-delinquent behavior, it will be difficult to argue that the market has stabilized or that performance has improved, until there is a concurrent increase in cure rates. This is especially true in the prime sector, which remains performing many times worse than historic averages. Prime 60+ delinquencies have more than tripled in the past year, from $9.5 billion to $28 billion total, or roughly $1.6 billion a month.

This really puts the recent rise in delinquencies in perspective. Look at this graph from MBA Forecasts Foreclosures to Peak at End of 2010



MBA Prime Delinquency and Foreclosure Rate Click on graph for larger image in new window.

This graph shows the delinquency and in foreclosure rates for all prime loans.

Prime loans account for all 78% of all loans.

Back in the 2000 to 2006 period, 45% of those delinquencies cured. Now, according to Fitch, only 6.6% cure - and a large percentage of those "cures" are modifications - and there is a large redefault rate on those loans.

Robert Reich says, "This isn't just Obama's test. It's our test."

The Public Option's last stand, and the public's
by Robert Reich

I would have preferred a single payer system like Medicare, but became convinced earlier this year that a public, Medicare-like optional plan was just about as much as was politically possible. Now the White House is stepping back even from the public option, with the President saying it's "not the entirety of health care reform," the White House spokesman saying the President could be "satisfied" without it, and Health and Human Services Secretary Kathleen Sebelius saying that a public insurance plan is "not the essential element."

Without a public, Medicare-like option, health care reform is a bandaid for a system in critical condition. There's no way to push private insurers to become more efficient and provide better value to Americans without being forced to compete with a public option. And there's no way to get overall health-care costs down without a public option that has the authority and scale to negotiate lower costs with pharmaceutical companies, doctors, hospitals, and other providers -- thereby opening the way for private insurers to do the same.

It's been clear from the start that the private insurers and other parts of the medical-industrial complex have hated the idea of the public option, for precisely these reasons. A public option would cut deeply into their current profits. That's why they've been willing to spend a fortune on lobbyists, threaten and intimidate legislators and ordinary Americans, and even rattle Obama's cage to the point where the Administration is about to give up on it.

The White House wonders why there hasn't been more support for universal health care coming from progressives, grass-roots Democrats, and Independents. I'll tell you why. It's because the White House has never made an explicit commitment to a public option.

Senator Kent Conrad's ersatz public option -- his regional "cooperatives" -- won't have the scale or authority to do what a public option would do. That's why some Republicans say they could buy it. What's Conrad's response? "The fact of the matter is there are not the votes in the United States Senate for a public option. There never have been," he tells "FOX News Sunday." Conrad is wrong. If Obama tells Senate Democrats he will not sign a healthcare reform bill without a public option, there will be enough votes in the United States Senate for a public option.

I urge you to make it absolutely clear to everyone you know, everyone who cares about universal health care and what it will mean to our country, that the bill must contain a real public option. Tell that to your representatives in Congress. Tell that to the White House. If you are receiving piles of emails from the Obama email system asking you to click in favor of health care, do not do so unless or until you know it has a clear public option. Do not send money unless or until the White House makes clear its support for a public option.

This isn't just Obama's test. It's our test.

Robert Kuttner thinks the time for the bipartisan approach is past

My view is that Obama is letting the opposition take the first punch, just as he did in the primary and in the general election, with the idea that counterpunching is more effective and viewed more favorably by the public and media.

Robert Kuttner is usually more right than me. Here is what he said.

Killing Yourself with Kindness
by Robert Kuttner
August 20, Huffington Post

Will somebody please explain to me why Barack Obama is still on his bipartisan kick?

Ever since Obama's first efforts to reach out to Republicans, with his cabinet appointment of two Republicans, Gates at Defense and LaHood at Transportation, and his appeasement of Republican tax-cutting demands in the stimulus package, the Republican opposition has made it clear that no goodwill gesture, no effort to meet them halfway signals anything other than weakness. They are out to destroy his presidency, pure and simple. Nothing makes this clearer than the battle over health insurance reform.

Even Chuck Grassley, the rank (I mean ranking) Republican on the Senate Finance Committee and the great white hope of bipartisanship for his Democratic buddy Max Baucus, was giving aid and comfort to the Palin "death panel" nonsense. "In House bill there is counseling for end of life," said Grassley, "And from that standpoint you have every right to fear ... we should not have a government program that determines you're going to pull the plug on grandma." Maybe it's time to pull the plug on Grassley.

The White House Chief of Staff, Rahm Emanuel, is said to be a tough guy. And Obama's top political adviser, David Axelrod, is supposed to be some kind of tactical genius. What do these guys think they are getting by continuing to kiss up to the Republicans?

I don't buy the claim that making nice got them any more Republican votes for Sonia Sotomayor's confirmation. The handful of Republicans who supported her were motivated either by demographics of their state or by the fact that a few GOP senators are still willing to approve a highly qualified centrist nominee and didn't want to alienate women voters. Had Obama been playing hardball on other issues, it would not have fatally damaged Sotomayor.
Today's op-ed piece "by" Barack Obama in the New York Times was the same old high-minded pabulum. It read as if it had been pureed several times by the speechwriting staff:

The long and vigorous debate about health care that's been taking place over the past few months is a good thing. It's what America's all about.

But let's make sure that we talk with one another, and not over one another. We are bound to disagree, but let's disagree over issues that are real, and not wild misrepresentations that bear no resemblance to anything that anyone has actually proposed. This is a complicated and critical issue, and it deserves a serious debate.

That's great above-politics stuff if you are modeling high school civics, not so great if the other side is going for the jugular -- and winning.

Clearly, the administration playbook is to stick to the high road and not take the argument to the other side. But the strategy isn't working. The approval ratings for both the president and for his health plan are falling. He isn't even inspiring his own strongest grass roots backers to turn out in numbers at support rallies.

Obama's own gut instincts seem to be a little better than those of his astonishingly risk-averse advisers. At his own town hall meeting in Portsmouth, New Hampshire August 11, Obama was quite eloquent and detailed on the foolishness of the "death panel" lies, and he also said this:

Every time we come close to passing health insurance reform, the special interests fight back with everything they've got. They use their influence. They use their political allies to scare and mislead the American people. They start running ads. This is what they always do.

We can't let them do it again. Not this time. Not now. (Applause.) Because for all the scare tactics out there, what is truly scary -- what is truly risky -- is if we do nothing. If we let this moment pass -- if we keep the system the way it is right now -- we will continue to see 14,000 Americans lose their health insurance every day. Your premiums will continue to skyrocket. They have gone up three times faster than your wages and they will keep on going up.


But, oddly, he didn't name the "special interests" (like the insurance and drug industry) because they are nominally part of his reform coalition. If anyone is killing somebody with kindness, it's the insurance industry backing Obama and slyly killing real reform.

Despite the lies, the real insecurity that people feel, and the shameless Republican opportunism, health reform will be a loser for Obama and the Democrats unless this president can shake off his delusion that bipartisanship works. So far, it works mainly to strengthen the far-right and weaken this president and what should be a reform moment.

Robert Kuttner is co-editor of The American Prospect, a senior fellow at Demos, and author of Obama's Challenge.

Chris Hayes Inspired Health Insurance Reform Flowchart

by Nicholas Beaudrot